The payment approved by the IMF’s Executive Board in Washington on Tuesday will raise to almost $560 million the total amount of funding received by Yerevan under the fund’s anti-crisis “stand-by arrangement,” or SBA, launched in March last year. The IMF boosted the 28-month loan package by more than half to about $830 million in June, citing the sharper-than-anticipated impact of the global recession on the Armenian economy.
The new tranche disbursement was recommended by a high-level IMF mission that visited Yerevan and met Armenian officials last month. Murilo Portugal, the fund’s deputy managing director said the authorities in Yerevan continue to comply with the terms of the SBA, citing fiscal and monetary policies pursued by them in the past year.
“The authorities are committed to make good progress on the reforms in tax policy and administration, as well as on public expenditure and debt management,” Portugal said in a statement issued after the board meeting.
“The financial sector remains sound and well capitalized, and the authorities have strengthened their crisis preparedness and contingency planning frameworks. Further reforms will be important to ensure continued resilience to risks,” he said.
Portugal added that the Armenian government is committed to implementing far-reaching reforms that would result in “an improved business environment, better governance, and increased market competition in key sectors of the economy.” The IMF and the World Bank believe that such reforms are essential for Armenia’s sustainable economic development.
The IMF funding is being used for financing Armenia’s increased state budget deficit and replenishing its hard-currency reserves. The fresh loan tranche will come in handy for the authorities as they grapple with a renewed depreciation of the national currency, the dram, which began last month and accelerated in mid-March.
The dram rallied against the U.S. dollar and euro early last week only to resume its slow but steady slide in recent days. That as well as a relatively modest volume of currency trading at the Yerevan stock exchange suggests that the Armenian Central Bank has not resorted to heavy dollar injections into the local financial market to prop up the dram. Portugal noted that the bank and the government are “committed to a flexible exchange rate regime.”
The Armenia currency is again under strain despite a faster-than-expected economic growth registered by the authorities during the first two months of this year. The country’s Gross Domestic Product increased by 3.1 percent year on year after a 14.4 percent slump reported in 2009.
Gagik Minasian, chairman of the Armenian parliament’s committee on finance and budgetary affairs, on Tuesday stood by government claims that the Armenian economy has already emerged from its first major downturn since the 1990s. “We can clearly conclude that we have emerged from the crisis,” he said, pointing to the January-February growth.
But Bagrat Asatrian, a former Central Bank governor critical of Armenia’s current leadership, claimed the opposite, predicting that the growth will remain in negative territory this year. He argued that January and February traditionally account for less than 10 percent of annual economic activity in the country and that anti-crisis lending to the authorities will considerably fall this year.
“The crisis has not left Armenia. In my view, citizens of Armenia will be less happy this year than they were last year,” Asatrian claimed at a news conference.
The IMF’s Portugal was also cautious in interpreting the most recent macroeconomic data, saying that the economic recession appears to have only “bottomed out.” “The challenge remains to support the fragile recovery, address external vulnerabilities, and advance a credible fiscal consolidation plan over the medium term,” he said.